Leasehold Reform: Enfranchisement

Our focus here will be on leasehold enfranchisement however in brief, the recommendation in the commonhold report is to re-invigorate commonhold as an option to replace leasehold for newly-built flats and give leaseholders a route out of leasehold by making it easier to convert to commonhold. The right to manage report includes recommendations to make it easier and cheaper for leaseholders to take over the management of their building without buying the freehold.

The aim of the leasehold enfranchisement report is to make the enfranchisement process cheaper and faster, and it would remove some of the obstacles that leaseholders face when enfranchising. This will affect our commercial clients as well as our residential clients. The recommendations could also resolve the issues that some leaseholders have with the onerous ground rent provisions contained within their leases which have become an increasing concern.

Key recommendations: leasehold enfranchisement (lease extension)

• A uniform right to a lease extension among leaseholders of both flats and houses.
• A right to extend leases by 990 years, rather than the current position of 90 years for a lease extension of a flat and 50 years for a lease extension of a house. As is the case currently, ground rent should become a peppercorn.
• The starting point for a lease extension should be that the new lease is on the same terms as the existing lease. Either party should be permitted to require suitable variations to be made where there is a particular reason, for example, taking account of alterations made since the grant of the lease or to remedy a defect.  The recommendation is that the parties should not be able to agree whatever terms they wish due to the inequality of bargaining power between leaseholders and freeholders.
• A new right for leaseholders who have long leases to buy out their ground rent under their leases without having to extend the term of their lease. This is of particular interest to those who already have long leases but would wish to remove their annual ground rent liability or those who are not in a position to extend their lease but who have onerous ground rent provisions.
• Abolish the current requirement that a leaseholder must own the property for 2 years prior to being able to serve a notice to extend their lease. This would be positive news for purchasers who acquire a leasehold property with a less than favourable term remaining. The report also recommends that on a sale of a property the benefit of a Claim Notice should automatically be transferred with the affected lease, unless the transferring leaseholder expressly withholds the transfer of the benefit.
• Simplify the procedure for extending a lease. The current system can result in failed claims where strict time lines are not adhered to or where minor mistakes are made on claim forms. The recommendations will remove the legal traps which cause claims to fail and which enable unfair procedural or tactical advantages for landlords with experience of the system.
• Leaseholders should not be paying landlord’s costs as is currently the position. Each party should pay their own costs or otherwise the costs should be controlled.

The recommendations contained within the report will make the enfranchisement process more attainable to leaseholders if implemented by Government and will discourage the use of onerous ground rent provisions in new leases as well as help to rectify those leases which currently contain unfavourable ground rent provisions.

Key recommendations: collective enfranchisement (freehold acquisition)

• The term ‘collective freehold acquisition’ to be used instead of ‘collective enfranchisement’.
• Collective freehold acquisition must be done through a nominee purchaser which is a corporate body with limited liability to avoid the difficulties that can occur when individuals are named on the freehold title.
• Leaseholders can require the landlord to leaseback any units not let to participating tenants and therefore making the enfranchisement more affordable for those participating where there are flats without qualifying leaseholders, flats with non-participating tenants, or commercial units.
• The percentage limit of permitted non-residential use should be raised to 50%. The current position is that leaseholders cannot collectively enfranchise if more than 25% of their building is used for non-residential use.  In particular this will affect our commercial clients who own retail units with flats above as this will catch more buildings with commercial aspects.
• Currently those with 3 or more flats in a building do not meet the requirements for a qualifying tenant to participate in collective enfranchisement, the recommendation is that this should be abolished.
• Abolish the exclusion of resident landlord so that those freeholds with a resident landlord may still enfranchise.

The recommendations will make more leaseholders eligible for enfranchisement rights, by liberalising several qualifying criteria and removing obstacles to enfranchisement.